RAMALLAH, 23 December 2004 — British Prime Minister Tony Blair said yesterday his proposed London conference on Palestinian reform would be a critical step toward peace talks with Israel and an independent state.

Blair, speaking after talks with both sides, was on the highest-level diplomatic mission to the Middle East since Yasser Arafat’s death last month, which stirred fresh peace efforts after years of bloodshed.

But in signs of disagreement over priorities, every time Blair referred at a news conference with Palestinian leaders to the need to “stop terrorism”, they pointedly said Israel must also halt settlement building in the occupied West Bank.

In earlier remarks after a meeting with Israeli Prime Minister Ariel Sharon, Blair rejected suggestions that Israel’s limited, unilateral plan to pull out of tiny Gaza was meant to forestall a more significant West Bank pullout.

“I certainly have understood him (Sharon) to be saying very, very clearly that, provided terrorism stops, disengagement (from Gaza) is not the last word,” he said. Sharon has vowed to keep large West Bank settlements under any conceivable peace deal.

Blair told both sides the international meeting he wants to host in February was designed to promote a moderate, democratic succession to Palestinian President Yasser Arafat, and defuse the four-year-old revolt being waged by militant groups.

Blair, echoing the US and Israeli line, said a viable Palestinian state envisaged by a “road map” plan that US-led mediators aim to revive after Arafat’s death could never come to pass unless Palestinians ended militant violence to start off.

“Viability cannot just be about territory, it also has to be about proper (Palestinian) democratic institutions, proper security...” to persuade Israel it could live alongside a Palestinian state, he said in Jerusalem at a press conference with Sharon.

Later in Ramallah after talks with Mahmoud Abbas, Blair made fewer references to Palestinian violence but said it must end for the parties to embark on the road map. The moderate Abbas is tipped to win a Jan. 9 election to succeed Arafat.

“We can all say we can agree on the two-state solution, but quite frankly we have had paralysis for months and years on this process,” he said.

Abbas praised Blair for organizing a conference likely to marshal more international funding for Palestinian reforms, but suggested there should be equal international pressure on Israel.

“We expect from the Israeli side (at the same time) a stop to the expansion of settlements .... We are very keen and concerned to catch up on the time lost from the last few years.

“We think addressing final status issues (for statehood) is extremely important. We are available to start very quickly on (such road map) negotiations,” Abbas said.

Palestinian officials presented Blair’s visit as a precursor to formal peace talks.

“We support British efforts to restart the peace negotiations. We will attend the proposed peace conference and we hope it lead to...implementation of the road map,” said senior official Tayeb Abdel-Rahim.

Sharon has said Israel will not attend the conference and Blair found no problem with that since it would not address road map issues. Sharon aims next year to evacuate all 8,000 settlers from tiny Gaza and a few hundred of 230,000 in the West Bank under a “disengagement” plan. Palestinians see it as smokescreen to retain most of the territory they want for a viable state.